See the show notes for this episode: Mastering the Art of Seed Investing and Startup Innovation | Show notes
0:00:01 - Alex Shevelenko
I am so delighted to introduce you to Mike Maples Jr., co-founding partner of Floodgate. He has been on Forbes Midas list eight times in the last decade. Before becoming a full-time investor, Mike was a legit operator, a founder with an exit. And you may have heard some of his investments in little companies like X, Twitch.tv, Okta, Chegg, Demandforce, and so on and so forth. Mike has just co-authored an amazing book “Pattern Breakers: Why Some Startups Change the Future”. Welcome to the pod, Mike!
0:00:40 - Mike Maples
Hey, well, thanks for having me, Alex, it's a pleasure!
0:00:43 - Alex Shevelenko
Well, it's a treat. You're kind of a legend in the seed venture world. You've created that category. Perhaps you could start with that. You are yourself an entrepreneur by having originated the notion of seed investing. I think the audience needs to know what that is.
0:01:07 - Mike Maples
It's probably hard to imagine this, but in 2005, you couldn't raise a million dollars in Silicon Valley or anywhere else for that matter. You either would raise a small amount of money, usually less than $200,000, from friends and family, dentists, and all the folks you know, or it would go straight to a $5 million Series A. That was kind of the minimum check size for a startup at the time. So that was the order of the industry at the time.
And then the other thing that had happened was we'd just come out of the dot-com meltdown. And so it was kind of time to get the party started again on the internet and we were starting to see the early phases of what came to be called lean startups. Amazon was just starting to come out with AWS, you had the LAMP stack, all these trends, and so that was kind of when I started working on the ideas of seed investing, it was really less of a reaction to what was happening in VC and more just what I observed and what founders needed. I kept seeing founder after founder says, “Really, all I need is a million dollars. I don't need $5 million.” And so that is what was the genesis of, “Hey, well, why don't I just write checks that the entrepreneurs actually want?”
0:02:28 - Alex Shevelenko
I have a story in my head about what it takes to introduce yourself as an entrepreneur. You know the future. Here's what we're building, here's the journey. Could you tell us the fundraising story that you went through yourself?
0:03:00 - Mike Maples
Yeah, and I think in hindsight, I was living in the future, whether I knew it or not. And so, basically, I think it is actually a good lesson for fundraising. My basic theory is that if you're doing something new, most people should not like it by definition because human beings are conditioned to like things.
So if everybody likes your new idea, it's too similar to what's already come before it. And what I would do is, when I would talk to potential investors, I'd say, “Okay, I'm about to tell you something, and if you're not inclined to believe what I'm about to say, I can give you the rest of your time back because nothing else is going to make sense.”
I would say there is a gap between angels who invest less than $250,000 and VCs who invest greater than $5 million. You can't raise money in this gap very easily right now. And then, simultaneously, there are more and more entrepreneurs who want to raise that amount of money, and there's a set of reasons for that. Some people are calling it what we started to call lean startups, and so my basic thesis is that 500,000 is the new 5 million and that there will someday be a new category of seed firms that fill that gap. If you don't believe that could ever be a conceivable future, it doesn't really make sense for me to present anything else, because it's not going to make any sense. But what was interesting was why is that important. I was basically conveying my insight, and what happens is a lot of times when you pitch an investor, you end up having what I call a Franken-deck, which we can get to. It's like 30 slides anticipating every objection conceivable.
0:04:51 - Alex Shevelenko
And what objections from investors that have no business investing in you at all?
0:04:57 - Mike Maples
Right. What I wanted was if somebody said to me after I expressed my idea, if they said, “Well, why isn't a VC at a good firm going to come down and compete against you?” I'd say, “Okay, think about that. If I'm Peter Fenton at Benchmark, why do I want to leave Benchmark to start a seed fund? So I'm not going to compete against him. The only people I'm going to compete against are the people who aren't performing very well in Series A. And then you can just come to your own conclusion about whether I can outperform the underperformers.”
But return back to first principles. Remember, I'm addressing a gap between angels and VCs. I have no ambitions of competing with Benchmark, Sequoia, or Kleiner Perkins, and so I find that quite often you can get your insight on slide one — “What does the product do?” And explain to me like I know nothing, “You know, we're Airbnb, we let you rent an extra room in your house.” And then slide two is, “Okay, what is that?” I know that's not obvious. The case of Airbnb Four Seasons, it’s an awesome hotel. But when you're in Paris, more and more people are going to want to live like a Parisian, or when you're in San Francisco, they're going to want to live like a San Franciscan. So you can stay in the Four Seasons in central Paris, or you can go stay in a 17th century left bank villa.
0:06:21 - Alex Shevelenko
The 17th century left bank with the baguette Alexander. Yeah, that's absolutely so! You get people to believe that you could have a local experience, and if they believe that, then it's a much easier story.
0:06:39 - Mike Maples
If they don't believe it, that's okay. What I find is that you're not going to convince them to invest anyway, so you might as well ask the question.
What you want is a subset of people who are ready to move with you and believe your insight.
You want to make sure they understand what it is really clearly. What can happen is you end up doing a pitch and an advisor who means, “Oh well, hey, I don't think you should say we're Airbnb, we let you rent an extra room in your house. I think you should say we're a marketplace for unused residential real estate supply because marketplaces are hot and prop. Tech is big.” And so you end up saying what the product is in a way that I don't know what it is right now, I don't understand what the company does. And then they pitch somebody else and they say, “Oh well, millennials are a thing now and millennials have more spending power. You should have a slide up front that talks about millennials.” And it's like your five slides in and you're talking about property tech, about sectors of the economy, property, and hospitality, and I still don't know what it is. Like at Stanford Business School.
Paper it's not something that moves you as a person toward the vision in the end. And so I call those Franken-decks. What happens is you end up with 30 slides and every slide anticipates every possible conceivable objection. Then the story gets muddled because you feel forced to go through this deck of 30 slides and the person that was inclined to believe your advantage never got a chance to really understand what that advantage was, because it got lost in the discussion.
0:08:34 - Alex Shevelenko
That's very interesting, and I would add one other dimension. I'm curious about your feedback on it. It's the person who believes in your way and your worldview. It almost becomes an emotional supporter, much more than the person who's kind of going for it. Is this an interesting investment opportunity?
0:08:57 - Mike Maples
Yeah, I think you're right. I'm just going to use one headphone. This thing is giving me difficulties. This infernal contraption is giving me difficulties. So yes, I agree with that, Alex. So I like to say that in early startup markets, people are animated by belief more than utility. So people do business with startups, not for practical reasons. They do it for aesthetic reasons and they believe in the aesthetically different future proposed by the founder. They feel an emotional connection to the idea and so they co-create the future with the founders, those early believers. That's why I call them co-conspirators. A startup is an optimistic conspiracy theory to change the future and you're looking for co-conspirators, kind of like the movie Ocean's Eleven, where you have all the guys that work together to rob the Bellagio safe. You want something like that.
0:09:56 - Alex Shevelenko
Let me tell you a story that would have if I had a chance to invest in Airbnb. I think I would have, and it's a story that I still remember to this day was my background is I kind of escaped the Soviet Union as a kid and we landed in America, barely spoke English, like a budget constraints, and the first kind of glimmer of making living well was I got an advance before I started a job after undergrad and I did this backpacking trip around Europe. The usual story was kind of Eurostar back then and once the thing led to another, I got introduced to somebody who introduced me to somebody, a couple in Paris that were kind of more English friendly and they just let me crash in their apartment with them. And it was special, it was way before Airbnb was born, so to date myself, but it was the most remarkable trip, highlight out of a remarkable trip, where you're kind of scrappy, there's living on a budget, but kind of having amazing experiences, deeply connecting with people. I tried to explain this like that's the experience of travel. That, for me at least, was the one that was way more interesting and exciting than you know.
The next trip to Paris was this consulting firm staying in the equivalent of Four Seasons. It was really cool, but that got boring pretty quickly. I have a French wife, by the way. Probably it's because I had this amazing trip to Paris back in the llate nineties. So that's living like a local, that's really embracing it, that's connecting with people and I think that that's you want people to believe in that because that's the person that's going to tell, you know, here's why I believe in this story.
The best trip for me in my life was this trip when I was doing Airbnb. Before there was Airbnb, right, I was living in the future as a customer, trying to do something. What these guys are doing and I see this in my business. My best customers are by far people who have tried something similar and struggled with it. We had the same thing we found in SuccessFactors, and so it feels like the investor that's going to champion you and recruit people on your behalf, would be the same investor, too.
0:12:32 - Mike Maples
I think that's right. There are just different types of co-conspirators. So you've got your customers, you've got your early startup employees, you have your investors, partners. The other thing, though, that you mentioned that I think is really profound, is that, when I think about product market fit, there's a question I like to ask, which is what can we uniquely offer that people are desperate for? And what you find is that people who are desperate by definition have tried to solve the problem already.
Usually, and this is especially true in B2B—and this may be what you're seeing with RELAYTO—the people who are going to be your customers are already trying to solve the problem. Ideally, they've tried to solve it and failed in some way or not succeeded to the extent that they'd like to.
Why is that important? Well, it's hard to argue that somebody is desperate if they haven't tried to solve the problem already if they don't even know the problem exists in the first place and so, whereas if they've tried to solve it already and failed, you know a couple of things. You know that they're aware of the problem and you know that they care about solving it, and you know that they realize they can't solve it, and so that's pretty valuable. Like why do we want desperation? Because if they're not desperate for it, they'll be able to use an existing alternative. That's good enough. So you want a situation where there is no existing good enough alternative, but where they're desperate to solve it so that you show up and they're like, where have you been all my life?
0:14:11 - Alex Shevelenko
Yeah, and Mike, on behalf of our audience, I just want to restate what is your tag, this tagline that you use, because I think it's incredibly valuable and I think you could leave this interview right now. And if you remember your story of how you applied it in fundraising for yourself, you're done, you're like you've got like a ton of insights. That's a lifetime of experience, uniquely unique to your product that people are desperate for. What's unique to your product that people are desperate for?
Yeah, I think this has been happening ever since we chatted last time. I've been applying that a lot in my business, and it's just like forcing us to make decisions was a bit more clear. I guess what's the right word? Just more decisiveness, for lack of a better word, about what we got to cut because there's still so much noise. Otherwise, it's essential.
0:15:14 - Mike Maples
That's right, and it's also interesting. To me, startup capitalism is a different kind of capitalism. Most companies are concerned, they're persistently compounding, and they have competitive advantages. But startup capitalists have none of those things. They're going from zero to one.
So the first thing we need is an insight breakthrough that breaks free from normal assumptions about the future. An insight should harness inflections that provide extreme empowerment, and it should be non-consensus. The reason is that the only way you could be truly unique and different is to be non-consensus. If you're like what's already come before, you're not radically different enough. And so then, once you have an insight breakthrough, you're answering a specific question what do we know about the future that's powerful and not obvious? So then you transition to the product market fit breakthrough, which we just talked about, which is what can we uniquely offer that people are desperate for? And when you think about it if you have a powerful, true insight that defines your uniqueness.
And so now what we need to do is navigate the insight to the desperate, and we do that by one of two means. We either change our implementation, so like Okta started out as problem resolution for cloud, and the cloud customers repeated back to them that they wanted identity management. So in that case they changed their implementation. But in other cases you have the right implementation but the wrong customer audience. So, if Okta talked to somebody who says, how do you integrate this with on-prem, they'd be like, well, I'm talking to the wrong people, that feature is irrelevant.
So when people talk about pivots, you're holding your insight down as your pivot foot, metaphorically just like in basketball, and you're moving your body by varying the implementation or varying the audience that you focus on to identify the desperate.
And so you're trying to come up with an implementation that resonates with the desperate, that harnesses the empowering conditions of your insight. And then, once you have that, you have something unique to offer that people are desperate for. Then, once you succeed at that, you transition to the growth breakthrough phase, which is how do I get exponential organic word of mouth? How do I grow at an exponential rate? And if you get these right, you transfer energy from one breakthrough to the next. A more powerful insight creates the opportunity for stronger product market fit, which creates the opportunity for more rapid, radical escape velocity growth. And so if you transfer energy from one phase to the next, you're just tearing into the new market category with just incredible speed and that's how you become this dominant someday category king, and then you are a company someday. But that's kind of what we're looking for. is this?
0:18:16 - Alex Shevelenko
Is this energetic set of breakthroughs that allows the startup to escape the trap of the present and allow them to not be compared with anything that's come before? This is a really powerful walkthrough. Let's take a step back. Those in the corporate world who are trying to launch new products are becoming the entrepreneurs of their companies in the earlier stages of the journey. Because what you're saying, is that you really got the beginning right, because you're accelerating on something that's you know and it's working, but you're not going to get that escape velocity. So let's come back to that founder or project leader living in the future, because I personally kind of struggled with this a little bit. So, on the one hand, you could be, because living in the future could be with one customer segment in the future and they're very exciting. The other customer segment that's very much kind of behind in the present today wants to be in that future eventually, but it's not there yet.
And it feels like there is a thread here because if you're going to the super futuristic customers all the time and you're kind of selling it to them, then well, they're the early adopters in the product hunt, and they hop around from one thing to the next and they don't implement anything.
They may not have a lot of power, you may get lucky and they may, but you're competing in that noisy world with lots of alternatives, they're the people who are living in the future, they love testing things out, and so a lot of people that get a little cut up in that. And you could see it in some sectors, like in B2B tech space, the Silicon Valley companies selling B2B software are going to be earlier adapters than other B2B companies outside of the Valley, and so I wonder, like to what degree you see that you could work with one segment, see that something is interesting for that segment, and then go find another segment that's going to be expecting that pain, maybe in a year, maybe in two years, and to them you're a lady in the future and you're the owner of what's going to happen in their world. Have you seen that pattern?
0:20:43 - Mike Maples
Well, a little bit so, I guess. So here's how I look at it, and I guess you could distinguish it in a couple of ways, because you'd also mentioned, like, let's say, you're in an existing corporation and you want to do something new. So a good example early in my career I was at Silicon Graphics and at the time SGI was a really hot company and most of their customers were in aerospace and defense and the auto industry. So they would use these computers to create 3D models of airplanes, cars, and mechanical objects. We decided that we wanted to see if Hollywood would use our computers to do computer graphics in movies, CG, what became known as CGI. So my job as a product manager was to go get a lot of these special effects studios excited. When Jurassic Park came out or Terminator 2 or the Abyss or these movies, they were using our computers.
So one of the things that I saw early on was there was this one group of people called Industrial Light & Magic and George Lucas had put them in business and they were doing the most innovative special effects in the world at the time. They'd done all the Star Wars movies. They'd invented a lot of things that had been used in other movies for special effects, and I realized that if we could get Industrial Light & Magic to use Silicon Graphics’ computers to do special effects in all the movies they'd been hired to do effects for, they would just take us to the promised land because they were solving the problems that everybody was going to want to solve someday. And so Ed McCracken at the time had a term that I really liked, called “lighthouse customers”. You know, customers are equal.
For some customers, it's like they're shining a ray of light that pierces through the confusing fog of uncertainty about what the future is going to be, and so these lighthouse customers are just way more valuable. It's like a 10x programmer, but for customers what happens is they're living in the future, and because they're living in the future they discover firsthand the different ways of thinking, feeling, and acting in that future that the new technologies afford to them. So they understand how to break the patterns before the rest of us do because they're encountering the limits of the cutting edge of what's possible, and so their intuition about what needs to be built is far more likely to be right, because they're building what's missing in the future and they want you to build with them what's missing in the future, and so you end up solving their problem. And then it turns out everybody else who does special effects is like, hey, we need to do our stuff the way Industrial Light & Magic does it, and so that's what you really want.
What Todd and Freddie got right at Octa is they found all the early adopter customers of cloud computing that had lots of cloud apps all over the place and they're like, “We solve their problem!” If you're willing to bet that someday lots of people are going to embrace the cloud, then the problems that we solve right now for these people are going to become universally applicable. Just most people don't know that yet because they're not living in that future in there.
0:24:05 - Alex Shevelenko
Yeah, and I want to highlight that insight.
It kind of was a counter example of a mistake that I've made that I didn't realize at the time: Sometimes, I knew the lighthouse notion, but I thought of it a lot more as a marketer, from a brand perspective, because at Salesforce, I was not that close to the product, and when I was there, they were like, oh well, this is our great customer here and this vertical, and they were really great brands.
And so I was like, this is how you do it, you get a customer that everybody knows and then that kind of helps you move. I think that's partially true. I think, great, but it's a combo of a great brand and being on the cutting edge of what you're describing, and I think I got caught up in the brand and then like I think then when I realized, oh well, if the customer like, we are very fortunate to have started working with Salesforce, they were both innovative in the how they use the product, taught us a lot, did a bunch of expert UX research that we didn't even do ourselves, but I think it happened to be a brand. But there were a few others that were like, it's a great brand, but we didn't learn anything from them and it was at that early stage. I probably would have now traded off the learning for the brand if I had another crack at it.
0:25:29 - Mike Maples
There's a term I really like. We call it “founder future fit”. And so what we believe is that certain founders are authentically matched to certain types of futures better than others, right? So like, for example, Justin TV. Justin Kan was a year out of college when he started that company and it was a terrible idea. I mean, it morphed into Twitch. It became a great idea. But, Justin was perfectly suited to that future because he wanted to do a live reality, 24-7 show of his life.
You're not going to do that if you're a 30-something-year-old person with two kids and a job, but Justin's right out of college. He's like, hey, why not, I'll give it a whirl, and see what happens. He wanted to be an internet influencer before there was even a word to describe internet influencers, whereas, like another company I work with, Applied Intuition, they create autonomous vehicle simulation software for the big car companies and they're trying to get hundreds of millions of dollars per company. And so you need people. When you're across the table from the CEO of a car company, people across the table from you need to seem like they can do the job. And so, like Qasar Younis had been working on Google Maps and Peter had been working on the Waymo stuff, before both of them had grown up in Detroit and had worked in the auto industry, Qasar at General Motors, and so new executives at those companies. And so founders' future fit in that situation is different, they need to have experience, they need to have a following, and they need to have a track record that suggests that they can deliver on what they say they can deliver on. Todd and Freddie were another good example, right, Todd had been VP of Engineering at Salesforce, so he was from central casting to solve identity management for cloud customers.
Living in the future gives you two big advantages. One is you notice what's happening in the future before other people notice it. So if you're talking to Industrial Light & Magic, you're more likely to get the right requirements about the future than if you're just talking to a random studio. But then the other thing that happens is if you're living in a valid future and you have an authentic match to that future, early believers and co-conspirators are more likely to believe you than the next startup. You're going to attract believers more likely and rapidly. You're going to be right in the first place about what to build. And you're going to attract more people who believe in what you've built. That's a pretty important set of variables for success.
0:28:05 - Alex Shevelenko
So one of the things that you just brought up that I want to double click on is this notion that several of the B2B founders that you brought up are kind of central casting and they seem to have the credibility and the presence to be across the board, from CEO, CIO, et cetera. At the same time, in your book, you describe a typical founder as highly contrarian, and I'll quote you, quoting George Bernard Shaw, “The reasonable man is who adapts himself to the world. The unreasonable one persists in trying to adapt the world to himself. Therefore, all progress depends on unreasonable men.” It was the CEO types or, like some, have some tension with authority.
So a lot of our audiences in B2B, I'm obviously heavily in B2B camp, and I could sense, on the one hand, there is this sort of central casting phenomenon that you could fit in in the corporate world and I have the credentials and whatnot to look credible and can polish myself up as a former consultant or whatnot and play that role and at the same time, with my team or another context, I'm a bit more disagreeable by nature and less patient than I would be in a sales context, and I feel like it's a duality that I haven't heard a lot of people speak about. I would like to get your take on how you see people reconcile the way they are in the sales context and the way they are in driving an urgency in a business that needs to get that escape velocity?
0:30:02 - Mike Maples
What I'm about to say I'll just caveat slightly which is, there's that movie where the guy says, I have a particular set of skills. My point of departure on the world is fairly narrow. So I'm interested in breakthrough new businesses that create new markets and that can't be compared to anything that's ever come before, and so what I'm about to say applies to those kinds of businesses, whereas if you're trying to do a product line extension of an existing product, not so much. So what we need to do is be disagreeable in two ways.
The first level of disagreement has to do with the idea itself. So startup ideas that have breakthrough potential fundamentally disagreed with the status quo because they're saying that the patterns of how people think, feel, and act up to this point are no longer as powerful as a new pattern that I'm going to come out of left field and establish. A lot of entrepreneurs miss this opportunity. So what a lot of entrepreneurs do and I'm sympathetic to them but they say, hey, I heard that you should go after big markets. I want to find a big total available market. So they find a big TAM, and then they try to find unmet needs and unserved customers with big problems in that big market. But the problem is, when they do that, they buy into a context that they don't realize they're buying into, which is the current rules set by current incumbents. You're making a conscious decision, well, maybe an unconscious decision, but you are making a decision to operate according to the rules of the status quo and the incumbency.
My view is that if you want a breakthrough, you have to deny the premise of the rules. You have to say, “It's axiomatic that the way for me to win is for the future to not be an extension of the present, to not forecast, but instead the future to be radically different.” I want to be cast from radically different futures, and so I need to come up with an idea that disagrees with the mainstream in terms of the best way to go about something, and that requires independent thought. Twitter didn't call themselves Microblogs Inc, right? It requires you to invent a new language to describe the product. It causes you to have to tell a completely different story about what your offering is. An example of recent times that I like is the Tesla Cybertruck. You may think it's ridiculous, but nobody after seeing the Cybertruck ever says, how's that different from an F-150, right? It stands alone. It can't be compared. So that's the first disagreeableness part.
If you want to move the world to a different future, there will be people in the status quo who try to prevent you from doing that because the very word status is embedded in the status quo.
There are people whose livelihood depends on the future saying the same, and so they're going to try to use every weapon they can. The taxi lobby is going to try to lobby the government to put Lyft out of business, or the hotel lobbies are going to do the same with Airbnb, and you know they're not interested in facts or logic or negotiating with you. They want you out of business, they don't want you to succeed, and so there's going to be a set of people where you're going to have to decide whether agreeing with them and getting their approval matters more or fulfilling the mission matters more. And so you also have to be disagreeable in the sense that you break some glass and offend some people, offend the sensibilities of people who want to preserve the status quo. You propose an idea that's unsettling to most people who don't want to move with you. And so you have to be willing to look foolish, to seem disagreeable and to have people not like what you're doing, and that comes with the territory.
0:34:16 - Alex Shevelenko
So let's take that premise. I still want to come back to enterprise B2B. If you look too disagreeable and you're too crazy, you may appeal to some early adapter segment, for sure, but you yourself brought up that you need to look the part of an innovator, but in that segment, or somebody that is gonna get stuff done inside my organization, so that if I take my career on the line in betting on this company that at least I have some confidence that they're going to execute and follow through. How would you take that disagreeableness and kind of polish it up, so to speak, from that context?
0:35:02 - Mike Maples
Yeah, in the context that you're bringing up, I'd say that it manifests in having discipline and integrity with your early customers. So, if you look back at the Okta example, he was talking to a bunch of cloud customers, but he was also talking to people who had a mixture of cloud and on-prem and some people were saying, oh, I want you to integrate your identity management with my on-prem applications. And Todd had the insight to say that's not what we do. And now the temptation is to say yes to that because that customer's money is green and it's going to help you make the quarter and all those things.
But what happens with a lot of startups is they say yes to features in order to get the deal closed, but they're not additive to the strategy. They don't flow from the insight that underlies the product. As a result, they implement features that aren't additive to the strategy, which wastes time and limited ergs of energy. But, even worse, they end up getting business from unattractive customers. You know those customers are more likely to churn because they believe less staunchly in what you believe. You're much better off finding the customers who believe what you believe and telling them the truth with no tricks and completely solving their problem and then working with them. Hopefully, they magnetize you to the future and you're co-creating the future with those customers. So I think you raise a really good point. Though, Todd McKinnon is a pretty normal confidence inspiring guy. He doesn't run around, he doesn't show up in the world the way Elon Musk does but, in the case of Todd McKinnon at Okta, he was the valid personification of founder future fit. He was disagreeable in the sense that he said no to the features he should have said no to, but he also personified the future in a way that made those early cloud customers comfortable doing business with them.
Whereas, like, if you're Elon Musk, your founder's future fits different. Because you're blasting rockets into outer space or you're starting an electric car company, you've got to do crazy. You've got to be a miraculous fundraiser and persuader and if you're SpaceX, you got to hire a rocket scientist on your team and convince them to join it. And you know you've got to break some glass because there's NASA's going to try to put you out of business at first. The car companies, the car dealership networks trying to make it illegal to even sell your cars, like in states like Texas and things like that. And so you have to overcome a lot more resistance from the present fighting back and so that yet again is a different set of person.
And then if you're Marc Andreessen at the University of Illinois inventing the Internet browser, that's more of a bottom-up birds of-a-feather technical alpha geeks phenomenon, and so you don't really need to be like Elon or like Todd, it's more like you have to be sort of a technical sort of alpha geek that magnetizes other alpha geeks, kind of like Wozniak with the original Apple computers. And so founder future fit is a really interesting way of thinking about it because in every future you can imagine an ideal founder and an ideal set of capabilities from central casting for that future. And what I look for when I fund these startups is the best founder, the best founding team for that specific future that I could ever imagine going after it. Because I think that that's a very strong signal. In the early beginnings, products pivot and change a lot. There are a lot of changes and uncertainty. But that founder's future fit gives me a lot of optionality and degrees of freedom for us to be successful no matter what happens.
0:38:52 - Alex Shevelenko
This also allows you to avoid generic startup advice. You know, people get out there, and you're actually saying, hey, look this. This is the future for that future, this is the right founder, the right set of personalities for that, right? So you're not trying to say, hey, do this. This is the playbook, and the playbook is the same all the time because you're a pattern breaker. You're looking for pattern breakers.
0:39:21 - Mike Maples
When you think about it, a breakthrough idea can't have a recipe. That's the whole point because if it's been undiscovered, they haven't been discovered yet. You can only have recipes for the things that have been discovered. And so a recipe is always a set of steps that someone who discovered the answer articulates. And so you're not looking for a recipe, you're looking for a mindset. The right mindset is to get out of the present to tinker with the cutting-edge new technologies that embody inflections. And in so doing you get your hands dirty, you discover what's new about it and what the limits are.
And that's where great startup ideas don't come from trying to think of a startup. They come from living in the future and building what's missing in the future. And so if you build what's missing in the future, your intuition about what to build is far more likely to be right. When I talk to a founder, quite often after the meeting, when I talk to my partner, Ann, or the rest of Floodgate, I'll ask what was that idea from the future.
And it's like I'm not interested in the founder's ideas about the future. I'm interested in knowing whether they're already living in it, whether they come by their ideas honestly getting their hands dirty in the future. William Gibson, the sci-fi author, was right, the future is already here. It's just not even right. Pockets of the future exist right now, today. Some of us are living in, most of us aren't. But those people who are living in those pockets of the future have a fundamental competitive advantage when it comes to being right about what needs to be built, how to create a movement, and how to attract other early like-minded believers.
0:41:05 - Alex Shevelenko
Yeah, it makes a lot of sense. And this is going back to that earlier question that asked where, if you see a future somewhere else already, can you bring it. Can you bring it and you're living it there and you're serving it, and then that future may already be competitive. But then you go to a whole other sector. For example, if you go from marketing communications to employee communications, marketing communications is going to be a bit further along more often than not in terms of how sophisticated it is in terms of presenting content and other ideas, and that's relevant for our audience. If you're then going to communicate employee benefits or employee experience, if you just talk to other people in your milieu, there you're going to have probably the past ideas of how that works.
Let's bring that marketing DNA, the sales DNA into the internal communications, that could be a game changer for that particular role in terms of how they do it. So I just encourage our audience to think about that quote from Gibson, which is like, just find where there is already future, be there, take that DNA. I'm very lucky that I could talk to HR people because I worked in that world as a marketer so I could connect the dots. But find the area where you can connect the dots between the future and the people who want to get there. It feels like that's part of the answer right here.
0:42:43 - Mike Maples
I think so. So you're trying to do two things. You're trying to find valid dwellers of the future and recognize that they're more important to talk to than anybody else, but then it also kind of returns back to first principles. We want to find the desperate, and so it's like we don't want to just take our product for what it is and rehost it to HR. You want to find an HR department that's living in the future. And then you want to say, okay, my insight is either relevant to them or it's not.
And if it's relevant to them, I need to find people who are desperate for what's relevant about it, and then I need to modify my implementation to unlock their desperation, to tease out their desperation, and then you sell to them first. You solve their problem first, and because you're solving the problem of the future, now you end up with the rest of the customers moving to that different future of your design. But it's like you got there first and now they kind of move to your point of view and your direction of how things are going, whereas the temptation is to say who's the biggest HR department in the world. Here's the thing I have to sell. Let me go sell that thing to them, and then quite often that ends up not landing.
0:44:03 - Alex Shevelenko
And I think you brought up category design and category kings from our mutual friend, Chris Lochhead, and one of the things that Chris talks about is when you're establishing a category, that's expensive, it takes time. You do want to do that, you want to be thoughtful about it, but you also need to be very thoughtful at moving people from adjacent categories that are dissatisfied or desperate, to use your words, and you're finding those people that want to move to your category. But you don't need to completely invent a new category that nobody knows about, nobody feels anything, any connection about. You need to tap into what people are searching for today. Maybe they don't know exactly about your solution, but they really care about the problem and then you introduce your solution to those types. Is that kind of a good way to connect the dots here?
0:45:00 - Mike Maples
So I think that the way Lochhead thinks about this stuff is really on point. And hopefully, I'll be able to channel him. Well, what I think Christopher understands is that our minds have containers in them, and so every day we're bombarded by messages. So I'm driving down the road, I see a Mercedes, I see a Lexus, I say, park that in the luxury car container in my mind, and so now I'm a startup. I have a choice. I can do one of two things. I can either say I belong in an existing container, I'm a new car company, or I'm a luxury car company too.
I'm a BMW. Okay, fine, I'm going to get compared to Mercedes and Lexus. Or I can say I'm a Tesla Roadster and you've never seen a car like this, and you can't compare a Tesla Roadster with a Porsche 911 convertible, or any convertible for that matter, which is a good thing, because a Tesla Roadster wouldn't have survived a normal comparison. The seats weren't as comfortable, the radio wasn't as good, and none of the things that people normally value in cars were good in the Tesla Roadster. But Elon had a vision about a different future, a future of sustainable energy, a future where you had electric cars, and so you weren't buying that Tesla Roadster because it compared favorably to Porsche 911. You were buying it because it was the first of an entirely new thing.
And so category design, in my view, is creating a new container in someone's mind. And it's better if you do that because you get to define the rules of competition in that container. So Steve Jobs did this with the iPod, and then he did it again with the iPhone, then he did it again with the iPad. A lot of people wrongly equate product-market fit with an existing abstract market out there. I need to go find it. But the great founders create the market by category design. They define the category and tell the rest of the world how to think about it. Steve Jobs told us how to think about tablet computers, smartphones, thousand songs in your pockets, and by doing that he forced the rest of the industry to play by his rules rather than him playing by the industry's rules.
0:47:17 - Alex Shevelenko
But to me, the profound thing is that when Steve Jobs was introducing the iPhone, he was still talking to the people who already thought they had a smartphone. And so he was explaining why what you're doing is a good start, but it's not the destination. And then he introduced that alternative future of the three in one, etc. So I think, like back to the startups, you have the luxury of building a category completely from scratch. There's a lot more, it's a bit easier, but if you can tap into a known unsatisfied segment within an adjacent category with which you can compete, feels like that's a pretty powerful way to hack Google and get that early adapter segment moving towards your view of the world.
0:48:19 - Mike Maples
I'd say that the high order bit is you want to avoid the comparison game. You lose when you get compared to other things. So the reason that Apple created a new category of phones, I would say, that contains all the other thoughts about it is nobody, after they saw the iPhone, said how does that compare to a BlackBerry.
It stood alone, and so when you're a startup, it takes courage. But my opinion is, if you're a startup and if you want to have breakthrough results, you have to be willing to stand alone. You might succeed, you might carve out a niche for yourself, but your upside is always going to be constrained by the amount of space that the incumbent gives you to succeed, whereas if you say, look, I've got something that can't be reconciled with what's come before, and it's funny, I've seen people do this well even outside of tech.
The five-hour energy drink is basically the same ingredients as Coca-Cola, but it's packaged in this tiny little bottle. It's on a different shelf in the supermarket. They make more money per bottle and it's like a fifth of the size of a Coke can. I look at that and I'm like, this is genius! Or Elmer's glue is in a white container, and then there's this thing called Gorilla Glue. That's brown.
What I think is that most people could be more imaginative about showing up in the world such that they aren't compared with other folks. It takes courage to do that because it's easier to say, I'm like this, but add these things. Because now you're resonating with something that somebody already knows. But if you're going to break the pattern, you want to show up with something radically different, because only by being radically different can you make a radical difference. And so you want to show up in the world in such a way where they're just like, oh my gosh, where have you been all my life?
0:50:33 - Alex Shevelenko
Well, if you want to break the pattern, you should buy Mike's book! Mike, tell us about that. Where can people find your book and get smart about making an impact in the world at an exponential scale?
0:50:46 - Mike Maples
Yeah, so the book is called “Pattern Breakers” and it's kind of a colorful set of examples of some of these companies that broke patterns. We try to push for the real, and so the stories are pretty wild. It's Brian Chesky with cereal boxes. It's Justin Kan live casting his life. It's the Twitter guys trying to decide if they're going to have vowels or call it voicemail 2.0. But it's the things that we've learned from these startups that had the radical success. And then how founders and corporations can apply the mechanism of breakthroughs to their own businesses, and so that's why we call it “Pattern Breakers” — breaking the pattern, being radically different enough to change the future.
0:51:36 - Alex Shevelenko
Awesome, highly recommended! It's also available on Audible, where I've been reading it and loving it. Mike, thank you so much for joining us and sharing your insights!